Provident, pension funds exposed to IL&FS stare at losses

Last Updated: Wed, Feb 20, 2019 12:22 hrs
A logo of IL&FS (Infrastructure Leasing and Financial Services Ltd.) is seen on a building at its headquarters in Mumbai

New Delhi: Provident and pension fund trusts, which have invested in the IL&FS bonds, are fearing big losses as the debt-ridden company's bonds are unsecured debt as the Finance Ministry says superannuated bonds don't carry any government guarantee and all such instruments face the market risks.

The government does not give any guarantee on investments in bonds, as such, and if invested in stock markets they carry the market risks as applicable. It is between the bond issuer and bond holders receiving returns, finance ministry sources said in response to IANS queries.

Thousands of crores of rupees of over 15 lakh employees of both public and private sector companies are exposed to IL&FS bonds through more than 50 funds. These include PF trusts of state electricity boards, PSUs and banks.

Queries to EPFO Commissioner and Labour Minister Santosh Gangwar remained unanswered.

The provident and pension fund trust have filed intervening applications in the NCLAT stating they fear to lose all the money since the bonds are unsecured debt. Trusts managing funds of PSUs like MMTC, IOC, Hudco, SBI and IDBI, and HUL and Asian Paints also have filed petitions.

Usually retirement funds have a low risk appetite and invest in AAA rated bonds (what IL&FS bonds were, once upon a time) and get assured returns with low interest rates.

Their worries stem from the classification of IL&FS profiling its companies as which can meet the dues obligations.

IL&FS is undergoing resolution process at the NCLT. It will decide, under section 53 of the IBC, the order of priority for distribution of proceeds of the process.

The company has informed the NCLT of the 302 entities in the group, 169 are Indian companies. Of these, only 22 are emerging as entities that can meet all obligations and 10 firms that can pay secured creditors.

While 120 IL&FS entities are still being assessed, 38 companies cannot meet any payment obligation.

These trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues and unsecured bondholders' dues would not be serviced.